STATEMENT OF JAMES G. RANDOLPH PRESIDENT. on behalf of. before the COMMITTEE ON FINANCE UNITED STATES SENATE WITH REGARD TO

Transcription

1 NATIONAL COAL ASSOCIATION STATEMENT OF JAMES G. RANDOLPH PRESIDENT KERR-MCGEE COAL CORPORATION on behalf of THE NATIONAL COAL ASSOCIATION before the COMMITTEE ON FINANCE UNITED STATES SENATE WITH REGARD TO THE BLACK LUNG DISABILITY TRUST FUND SEPTEMBER 13, 1985

2 I am James G. Randolph, President of Kerr-McGee Coal Corporation. Kerr- McGee is based in Oklahoma City and is a producer of both surface and underground mined coal. We have operations in Illinois, Wyoming, and in 1984 we produced in excess of 15 million tons. I am appearing today on behalf of the National Coal Association whose members constitute the producers and suppliers of most of this nation's bituminous coal. We appreciate having this opportunity to present our views on the Black Lung Trust Fund, the excise tax which supports the Fund and the impact of that tax on the price and competitiveness of coal. We have appeared before House and Senate committees on previous occasions seeking reform of the black lung program. Regrettably, the result of most of these reform efforts has not been entirely beneficial. What began as a justifiable effort to compensate victims of pneumoconiosis not covered by state programs had, prior to 1981, been transformed into a federal supplemental pension program rather than an occupational disease compensation program. Only since enactment of the Black Lung Reform Act Amendments of 1981, has the program achieved what it was originally intended to be, a workers compensation program providing benefits to those suffering from pneumoconiosis. Let me state unequivocally that it is this program which we in the coal industry continue to support. This was the intent of the original legislation adopted by the House in 1969; however, without a foundation of supportive medical evidence but with an all too familiar mixture of pork barrel politics and social reformer zeal, the legislation was broadened in conference to provide benefits to those not truly deserving. It is somewhat ironic that today those whose eligibility was established on less than sound medical evidence jeopardize the position of legitimate claimants where eligibility is beyond question. In 1981 the coal industry joined with the United Mine Workers of America (UMWA) and the administration in support of a package of amendments which were intended to: I

3 (I) base future entitlement on workers compensation criteria rather the employment criteria; and (2) "temporarily" double the black lung excise tax to bring the Trust Fund into financial solvency. While the amendments have succeeded in significantly reducing the prospective approval rate for new claimants, they failed to address that category of claims which cause the problem now being experienced by the Trust Fund; namely, those claims which were reconsidered and subsequently approved under the more liberal eligibility criteria which the Congress adopted in As a result, the Trust Fund remains in deficit and the Labor Department's 1981 projections of solvency, on which the tax increase was based, have been proven unreliable and largely groundless. Before addressing the dilemma facing the Department of Labor (DOL), let me briefly review the black lung program and how we got to where we are today. «Overview of the Black Lung Act and Reform Amendments The federal black lung program was initiated in 1969 as Title IV of the Coal Mine Health and Safety Act. It was designed to provide benefits to miners totally disabled due to pneumoconiosis arising out of coal mine employment and to survivors of miners whose death was due to the disease. At its inception, its sponsors characterized it as a limited "one-shot" effort aimed at only those who truly suffer an occupation-related disability. Its sponsors assured their colleagues that: "We are only taking on those who are now afflicted with pneumoconiosis in its fourth stage complicated pneumoconiosis..." The bill was introduced and enacted at a time when few states compensated disabled victims of pneumoconiosis and when no state provided compensation to miners or survivors of miners who had retired from mining prior to enactment of the state law. In 1972, Congress greatly expanded the eligibility criteria of the Act by adding a new presumption of eligibility based simply on coal mining employment of 15 years or more, by extending eligibility for benefits to survivors of miners who died from causes 1 Remarks of Hon. John Dent, page H-10047, Congressional Record, (Oct. 27, 1969).

4 other than pneumoconiosis, and by making several additional changes in evidentiary and eligibility requirements. The new fifteen year presumption was of particular concern to the industry because no medical evidence had shown a clear causal relationship between duration of employment and the incidence of disability due to pneumoconiosis. Against this background, Congress in 1977 amended the Act for a second time again expanding the eligibility criteria so that virtually any employee with respiratory distress could qualify for benefits. Further, by expanding the employment based presumptions, an employee did not even need to be suffering from anything but rather had to have worked in the mines for a specified number of years. This was achieved through the addition of an irrebutable 25-year presumption. Also, Congress limited the government's ability to re-read x-rays but also and most importantly directed the Labor «Department to re-examine all claims which had been denied prior to March I, 1978 under the new eligibility criteria. In order to pay for this largess Congress created what was to be a self-financing trust fund, the Black Lung Disability Trust Fund, financed by a per ton excise on domestic coal production. The following table indicates how critical this last point is within today's context: Category Approval Rate o pre-1977 claims 3% of all claims filed o claims subject to the review 45% of all claims re-examined under 1977 Amendments o claims adjudicated under % of all claims filed Amendments, prior to 1981 Amendments o claims adjudicated under 5% of all claims filed the 1981 Amendments The claimants subject to review under section 435 of the Act as amended in 1977 had previously been denied benefits under the Act for lack of sufficient medical evidence of impairment prior to the 1977 amendments. This re-examination of some 125,229 cases resulted in the approval of 56,957 claims. To reiterate, 45 percent of previously denied

5 claims were determined to be eligible for benefits from the Trust Fund as a result of the 1977 amendments. This is the single greatest factor leading to the difficulty currently being experienced by the Trust Fund. In simple terms, this congressionally mandated rereview of previously denied claims was the straw that broke the camel's back effectively bankrupting the Trust Fund. The 1981 Amendments In 1981, the Congress as well as the coal industry became concerned with the financial integrity of the Black Lung Disability Trust Fund. Since the inception of the Trust Fund in 1978, outlays had exceeded income from the coal excise tax by $1.2 billion, with the difference being made up by advances from the Treasury. To remedy the situation, the administration, the coal industry, the UMWA and the Congress embraced a legislative compromise intended to put the Trust Fund on the road to financial solvency while at the same time eliminating the questionable eligibility criteria. Further, the amendments directed the Secretary of Labor to initiate two studies and report legislative recommendations to the Congress within 18 months. I might add that on this latter point, the congressional ly mandated medical study on the state of the medical science concerning the diagnosis of pneumoconiosis and the relationship of simple and complicated pneumoconiosis to physical impairment and economic disability has yet to be delivered to the Congress, even though it was due in July We urge this Committee to direct the Secretary to report to the Congress on its findings. The Need For Congressional Oversight With the foregoing background one must ask what has transpired since enactment of the 1981 amendments and why the program must again be reviewed. As previously indicated, the 1981 Amendments have had a dramatic impact on the approval rate for those claims first filed after enactment, namely, a reduction from an approximately 14 percent approval rate for claims adjudicated under permanent part 718 criteria (used for all new claims) to slightly under 5 percent today. However, while this side of the

6 equation has lived up to expectations, the other side, the financing needs of the Trust Fund have worsened. When one considers that there are currently nearly 97,000 claimants receiving benefits out of the Black Lung Trust Fund and that 56,957 claims were approved under the 1977 amendments, it becomes obvious that the Trust Fund's shortfall and indebtedness can be almost entirely attributed to the expanded eligibility criteria which were adopted under the 1977 amendments and the re-review of previously denied claims. In other words, more than half of the claims approved were made during 3 years of the program's 15 year existence. The law as it applies to new claimants is working well. The 1981 amendments corrected the overexpanded eligibility criteria created in The approval rate today is a realistic 5 percent. The program is now designed as the occupation-related disability program which Congress originally intended it to be, as opposed to what it effectively became in 1977 an income transfer program for a selected, narrow group of citizens. Yet, the program continues to include a large number of claimants who were not intended to be beneficiaries under the original or the current aims of the program and who would not qualify for benefits if they were subjected to the '81 Amendments. The 1981 Amendments imposed a "temporary" doubling of the black lung excise tax from $.50 and $.25 per ton for underground and surface coal respectively to $1.00 and $.50 per ton. The DOL projected at that time in a letter from then Secretary of Labor Donovan to the Education and Labor Committee: "This legislation provides a solution to the long-term problems of the Fund, and should obviate the need to constantly revisit this matter each time there is a change in coal production or the economy in general." Now, within four years of that statement, we find the Administration proposing that the excise tax be increased once again. In its FY 1986 budget message, the Administration proposes to deal with the black lung problem raising an additional $235 million from the coal industry. This would be

7 accomplished by: (I) increasing the current excise tax by 50 percent to $1.50 per ton for underground coal and $.75 per ton for surface mined coal; (2) increasing the 4 percent sales price limitations; and (3) temporarily freezing monthly benefits. If adopted, DOL projects the Trust Fund would be solvent by FY The first two components of this proposal were included in the deficit reduction amendments which the Ways and Means Committee adopted prior to the August recess. We consider this to be wholly inequitable and unacceptable. The practical problem of attempting to solve the problems confronting the black lung trust fund through an excise tax increase is seen by the experience since the last time it was attempted, in While facing a similar revenue shortfall, the government and others projected robust growth in coal production sufficient to "close the gap" by the * 1990s. Instead, growth in coal production stagnated, minemouth prices declined nearly 20 percent in real terms, and Trust Fund borrowing is now to the level that a fifty percent tax increase is necessary to again "close the gap" by the 1990s. Yet the prospects for increased coal production to provide the needed revenue for the next decade are far more clouded than in With equilibrium being reached in the energy market and flat world oil prices predicted, coal is facing not only intense competition from domestic gas, but imported coal as well as Canadian electricity imports. Further excise tax increases not only debilitate coal's ability to compete domestically, but severely restrict coal exports to other countries, where competition is razor sharp. In short, no one knows what tax increase would actually cover the projected shortfall. Mr. Chairman, the black lung program has historically been wrought with abuse. The General Accounting Office and the Inspector General have issued numerous reports criticizing the Department over the administration of the program. Yet, once again we find ourselves opposing what many perceive to be our responsibility. We have and continue to assume more than our fair share of the cost of the black lung program and urge this Committee to reject the Administration's request. I would like to point out

8 that in addition to the excise tax, individual coal companies pay for claims for which we have been identified as the responsible operator. The black lung program has been in existence for 15 years. Unfortunately, DOL has not yet developed an accurate data base for the program from which realistic projections about future program expenditures and receipts can be made. Recently, the Department was presented with an independent review of only the population and benefit outlay sections of the Trust Fund model (copy attached). The review concluded that the model may be overstating expenditure needs by as much as percent. Clearly, this indicates that if the model is to be used as a credible representation of likely revenues and benefit outlays, it must first be subject to peer review and that any discrepancies must be rectified. The U.S. coal industry objects to the imposition of an additional monetary burden to fund a program which provides payments to individuals who are not medically deserving. We believe this objection is justified when one considers that in 1981 the coal industry and our customers were promised that this tax burden would decrease over time, rather than increase as is now proposed. The simple fact is the reason for the insolvency is the excessively liberal criteria used to qualify individuals for benefits prior to Prior to that time Congress structured the program to provide benefits to the maximum number of claimants irrespective of disability. It is now time to face that reality and initiate actions to cure the woes of the Trust Fund without limiting our ability to compete in both domestic and international markets. Mr. Chairman, the Black Lung Benefit Program requires careful scrutiny to determine where and why the errors were made. We suggest that the major problem with the program is the inclusion of 56,957 benefit recipients, many of whom this program was never intended to include - as the administration's proposed excise tax increase would do - to underwrite a supplemental employee benefits program for a narrow group of people and to compensate for the DOL's apparent inability to accurately project the costs of the

9 program. The coal industry and its customers should not be held responsible for this. In addition, you have before you major tax reform legislation which we will and have been addressing at other hearings. The provisions contained in that proposed tax package combined with the proposed increase in the black lung excise tax will significantly alter the coal industry's ability to compete not only with other forms of energy but also with foreign competitors in the coal market. There are many questions the Congress must address and evaluate prior to enacting yet another tax increase. The potential impact of any program changes on the program's beneficiaries, future domestic production and employment in the coal industry, and regional and international industry restructuring that would result from an increase need to be assessed. The financial insolvency problem seems to present only three solutions; increase the tax, as the administration suggests; re-examine previously approved claims applying the 1981 criteria; or treat the benefits program as a supplemental pension program and restore solvency by excusing some portion of the Treasury advances. Either of the first two alternatives would restore solvency. However, the political unpopularity of the second choice re-examination of claims, is no reason to embrace the first. Reexamining prior claims does not mean denying benefits to those who legitimately qualifyand we all agree on appropriate compensation for victims of occupational hazards. While some may find re-examination to be politically infeasible we would argue that increasing the tax in todays environment is equally economically infeasible. The third option is to acknowledge in legislation that the Trust Fund, which is liable for pre-1970 employment cases and instances where no employer-defendant can be found, is in fact no more than a transfer payment for largely welfare purposes and that it should be financed in the same way the earlier program was: from general revenues. In this option, the current $2.5 billion deficit of the Trust Fund would be excused. The current tax on coal producers and consumers would continue until the Fund is solvent. 8

10 (The number of beneficiaries will decline significantly after 2000.) What would change is that a tax increase would not be necessary to finance borrowing to cover an ever spiral ing debt, a tax increase that is self-defeating. Combined with this option of excusing either the Trust Fund deficit or interest payments to the fund would be continued tight administration of the program by the Labor Department, where the approval rate for new claims has dipped to below 5 percent since Mr. Chairman, the choice before this committee is not an easy one. We can continue the policies of the past or use this opportunity to steer a new course for the Trust Fund which will place it on sound financial footing while assuring that those who are truely needy recieve their just compensation. The nation's coal mines are cleaner and safer than in the days that lead up to establishment of the black lung program. For all of its faults and despite its somewhat sordid history, the current program enjoys widespread support. The goal for Congress and the administration in the mid-1980s is to set on a sound and equitable financial basis the federal government's one foray into an occupation disease compensation program. An excise tax increase on coal production and consumption will not accomplish that goal. On behalf of the NCA, I want to thank this Committee for the opportunity to present this testimony on the Black Lung Disability Trust Fund. We will be happy to provide further comment and assistance to the Committee members and staff, as well as respond to any questions which they may have.